Question

Please provide a high-level professional answer

(a) Identify four different users groups that will be interested in the information ina public company’s Annual Report.

(b) Discuss the information in the Annual Report that will be of particularinterest to each of the groups that you identified in (a)

(c) Discuss the Auditor’s Report and its usefulness to shareholders.

(d) Discuss the information provided in a Cash Flow statement and critically assess itsusefulness to readers of the Annual Report

Answer 1

(a) Identify four different users groups that will be interested in the information ina public company’s Annual Report.

Ans. 1. Management 2. Investors 3. Employees 4. Customers

(b) Discuss the information in the Annual Report that will be of particularinterest to each of the groups that you identified in (a)

Ans. 1. Management: Managers who act as an agent to the company are very much interested in knowing the condition of the business & also where it is headed.

2. Investor: Actual investors would want to know the business conditionso that they can make their investing decision i.e buy, sell or hold. This is also helpful for prospoective investors.

3. Employees: Employees are interested in the company’s profitability and stability. They are after the ability of the company to pay salaries and provide employee benefits.

4. Customers: Customers are very much interested in knowing company’s ability to continue its existence and maintain stability of operations.

(c) Discuss the Auditor’s Report and its usefulness to shareholders.

Followings are the usages of Auditor's report -

1. To understand profitability & operational situation: The auditor is required to state the auditor report whether the entity has any going concern problem or not. This includes financial and non-financial problems that could lead the entity to face bankruptcy in the next foreseeable period from the audit report date.

2. Reliability: it increase reliability of financial statements. Unaudited financial statements are less reliable since they have not been verified by by independent third party i.e auditor

3. Stating integrity on their shareholders: As auditor is independence from management, the report could prove whether managements are honest to their shareholders or not. This is related to principle and agency theory.

4. Accountability: It help shareholders to hold the management of the entity accountable if the financial statements shows unfavorable opinion.

(d) Discuss the information provided in a Cash Flow statement and critically assess itsusefulness to readers of the Annual Report

1. It helps the management to know how to create extra cash: Having profits is important. Profits are one of the things that help create cash. There are other things that can also help you create cash.

2. Helps in cash forecasting: A projected Cash Flow Statement helps the management about the cash position which is the basis for all operations and, thus, the management sees light relating to cash position, viz. how much cash is needed for a specific purpose, sources of internal and external issues, etc.

3. Better indicator than P&L for investors: This is an activity that literally every area of your company can get involved in through individual drivers. It tells the investors that what exactly were the reasons for outflows & inflows of cash.

4. it helps in knowing cash positions for lenders: Lenders are usually interested in knowing the liquidity & cash position of a company which can be deduced from cash flow statement.

5. Helps in tracking capital budgeting decisions: Cahflow statement helps in tracking capital budgeting decisions for management. ince capital budgeting relates to the decision of capital expenditure in various forms on a long-term basis, cash flow timing is very important for this purpose.